UPDATE 2-Somaxon signs P&G to promote insomnia drug, shares jump

* To launch key drug Silenor in September

* Co-promotion deal with P&G runs through Dec 31, 2012

* Shares up as much as 63 pct in heavy-volume trade (Adds conference call details; updates stock movement)

Aug 25 (Reuters) - Somaxon Pharmaceuticals Inc (SOMX.O) cleared the path to get its lead insomnia drug Silenor in U.S. stores by signing a promotion deal with consumer products giant Procter & Gamble Co (PG.N), sending its shares up as much as 63 percent.

The company plans to launch Silenor, also known as doxepin, in September.

The drug would reach sales of $232 million by 2014 and grab about 11 percent of the $2 billion insomnia market, according Thomson Reuters data.

San Diego-based Somaxon will record all sales of the drug and pay Procter & Gamble a combination of fixed fees and a royalty based on U.S. sales.

On a conference call with analysts, Somaxon Chief Executive Richard Pascoe said he expects to pay royalties of up to 15 percent of U.S. net sales.

Somaxon will pay a reduced royalty based on U.S. net sales for one year after the expiration of the agreement, which runs through Dec. 31, 2012.

Somaxon also granted Procter & Gamble a right of first negotiation to develop and market Silenor as an over-the-counter medicine in the United States, but said it did not see an over-the-counter version as a short-term possibility.

The company said Silenor was priced below Dainippon Sumitomo Pharma Co Ltd's (4506.T) insomnia drug Lunesta, Takeda Pharmaceutical Co's (4502.T) Rozerem and Sanofi-Aventis' (SASY.PA) Ambien CR.

The drug is priced at $151.50 per 30-pill pack, which is 11 percent below Ambien CR and 9.5 percent below Lunesta, it said.

The companies will promote the drug with a combined sales force of 215 representatives in the United States and plan to target 35,000 of the highest prescribers of insomnia products as well as 25,000 pharmacies.

Silenor was approved in March for the treatment of both transient (short-term) and chronic (long-term) insomnia characterized by difficulty with sleep maintenance in both adults and elderly patients. [ID:nSGE62H0KI]

Somaxon shares had surged 134 percent on March 18, when the drug was approved. They have lost 63 percent since then before Wednesday's gains.

The shares were up 44 percent at $4.87 in morning trade Wednesday on Nasdaq. They touched a high of $5.48 earlier in the session. More than 23 million shares changed hands by 1237 ET, about 20 times their 10-day average volume. (Reporting by Shravya Jain in Bangalore; Editing by Unnikrishnan Nair and Vinu Pilakkott)